Correlation Between Bank Central and First National

Can any of the company-specific risk be diversified away by investing in both Bank Central and First National at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bank Central and First National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank Central Asia and First National Bank, you can compare the effects of market volatilities on Bank Central and First National and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bank Central with a short position of First National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Central and First National.

Diversification Opportunities for Bank Central and First National

-0.78

Correlation Coefficient

Bank Central  First National

Pay attention - limited upside

The 3 months correlation between Bank and First is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia and First National Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Bank and Bank Central is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Bank Central Asia are associated (or correlated) with First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Bank has no effect on the direction of Bank Central i.e., Bank Central and First National go up and down completely randomly.

Pair Corralation between Bank Central and First National

Assuming the 90 days horizon Bank Central Asia is expected to under-perform the First National. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Central Asia is 1.12 times less risky than First National. The pink sheet trades about -0.01 of its potential returns per unit of risk. The First National Bank is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  19,469  in First National Bank on September 12, 2024 and sell it today you would earn a total of  3,531  from holding First National Bank or generate 18.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Bank Central Asia  vs.  First National Bank

Bank Central Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank Central is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First National Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First National Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, First National disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Central and First National

The main advantage of trading using opposite Bank Central and First National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Central position performs unexpectedly, First National can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First National will offset losses from the drop in First National's long position.

The idea behind Bank Central Asia and First National Bank pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.